Hon Hai plans more acquisitions

Hon Hai Precision Industry Co (鴻海精密), the world's second-largest electronics manufacturing service (EMS) provider, yesterday said it aims to acquire more component companies in the next six months as part of a broader expansion plan.

The announcement comes after the company wrapped up its latest purchase, in which it acquired handset maker Chi Mei Communication Systems Inc (奇美通訊) in a NT$2.5 billion deal with Taiwan's petrochemical giant Chi Mei Corp (奇美實業) last month.

"We have been working on [more mergers] ? We hope to settle one, or two deals in the second half of the year," Hon Hai chairman Terry Gou (郭台銘) told reporters after the company's annual shareholder's meeting.

"We won't buy notebook computer makers. We are targeting electronics component firms to further integrate with Hon Hai's" core business of component manufacturing, Gou said.

Hon Hai has over the past few years used acquisition as a primary means to strengthen its cost-control and product design capabilities, or to simply to grab orders, following its EMS peers.

In 2003 alone, Hon Hai acquired local wireless-equipment maker Ambit Microsystem Corp (國電), as well as Motorola Inc's Mexican handset factory and Finland's mobile-phone casing maker Eimo Oyj.

Market watchers have said that Hon Hai's moves reflect a growing trend among Taiwanese electronics manufacturers, which have sought more stringent cost control through mergers with component makers to offset shrinking gross margin.

Asustek Computer Inc (華碩), for instance, said earlier this month that it plans to issue global depositary receipts (GDR) equal to 350 million new shares to finance possible acquisitions later this year. Shareholders of the world's biggest computer motherboard maker gave the nod to the plan on June 9.

Contract notebook computer maker Compal Electronics Inc (仁寶) said it was in intensive talks to acquire another local networking equipment maker after obtaining a 10 percent stake in Accton Technology Corp (智邦) on June 13, when the latter held a shareholders' meeting. Compal currently has three seats on Accton's 14-member board.

During yesterday's shareholder meeting, Gou said he would take just NT$1 as his annual salary and ask management to prioritize shareholders' interests instead. He also offered his views on the industry for the second half of the year.

"The third quarter will be a fair season. Consumer electronics devices will enjoy the strongest growth as the Christmas buying spree is near," Gou said.

The outlook for the fourth quarter, however, was vague as the industry is changing swiftly, he added.

Hon Hai's shareholders yesterday gave the green light to a proposal to sell a maximum of 300 million new shares, or 9.25 percent of the company's total shares, through a GDR issuance to fund future expansion. Shareholders also approved a proposal to issue a stock dividend of NT$2 per share and a NT$2.5 cash dividend.

Hon Hai earned NT$29.76 billion, or NT$9.21 per share, last year, up 18 percent from NT$25.15 billion a year earlier. Revenues jumped 34 percent to NT$541.6 billion.